CT Property 17 August 2022

CT Property (CTPT) was known as BMO Real Estate Investments until July 2022. Following the purchase of the investment manager, BMO Global Asset Management by Columbia Threadneedle the name has changed. CTPT remains in the hands of the same team at BMO Real Estate Partners , now Columbia Threadneedle Real Estate Partners (CT REP), but the management has passed to Matthew Howard following Peter Lowe’s decision to leave CT REP to pursue other opportunities. While this is a lot of change, CTPT offers the same fundamental proposition, albeit with a new manager keen to make his own mark and drive performance forward.

Matt describes the portfolio he inherited on 19/07/2022 as being “excellent”, pointing to the strong representation in logistics and warehousing, the outperforming sectors in recent years which are still seen by the managers we talk to as having strong income growth prospects. It is also heavily focussed on the economically strongest south-east of England. Matt’s plan is to look for opportunities to broaden out the exposures of the portfolio in pursuit of higher-yielding and growth opportunities which should deliver superior returns over the long-run (see Portfolio). CTPT’s historic yield at the time of writing is 4.6% although this is boosted by the shares trading on a wide discount. The Dividend is currently at 80% of its pre-pandemic levels.

Discounts have widened in the property sector in Q2, and CTPT’s is one of the widest in the sector at the time of writing at 35%. However, the portfolio is heavily weighted towards the industrials sector and the trust’s debt does not need to be refinanced until 2026 (see Gearing).

Matt is clearly enthusiastic about the opportunity he has to shape CT Property (CTPT) and boost the yield. The current portfolio is strongly focussed on the industrial and retail warehouse sectors, particularly in the southeast of England. These sectors are relatively low-yielding, and Matt sees an opportunity to use his experience of investing across the UK to find value-accretive additions with a higher initial yield and the opportunity to boost valuations via an asset-specific business plan. He notes that the fund has a relatively low weighting to the north and midlands, which should present an opportunity to add diversity without compromising the quality of the underlying real estate or the regional bias. In our view any weakness in the property market – which discounts seem to be anticipating – should add to the opportunity if Matt can choose his timing and targets well. That said, it will complicate his efforts to sell properties to fund these acquisitions. However, the recent sale at a premium to carrying value of the property at Berkeley Street, London, is encouraging regarding the liquidity of the portfolio and gives a considerable boost to the cash available to fund acquisitions.

At the time of writing the discount has reached remarkable levels. In recent years CTPT has displayed considerable discount volatility. It is one of the smaller trusts in the sector which may be a contributing factor. However, we note the last time the discount reached such extreme levels shareholders enjoyed excellent returns over the following year. We would not like to predict a timeframe, but in the absence of debt needing to be refinanced in the near future, it is possible a similar dynamic may play out again.